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Spendthrift provision and its uses

People in Michigan who are worried their beneficiaries will waste their inheritances may choose to add a spendthrift provision to their trusts. This provision has other uses as well, and it is a powerful way to manage assets and ensure they will be protected long after the owner has passed.

According to the Huffington Post, there are numerous examples of when a spendthrift trust may be a smart decision. These include:

  • A beneficiary may not know how to manage a large amount of money and will waste it on frivolous and expensive items
  • An heir has a drug or alcohol addiction and the owner does not want the trust payments to be used towards their habit
  • A provision may protect certain assets in the event of a divorce, although this is not necessarily the case in regard to child support or alimony payments
  • Assets may be protected in the case of bankruptcy as long as the trust formation is not seen as fraud

According to Forbes, a spendthrift trust is especially beneficial if heirs are not financially responsible. A trustee can be directed to distribute trust assets in a way that covers the beneficiary's lifestyle maintenance but keeps the rest of the inheritance away from their grasp for a certain amount of time. The rest of the assets may be distributed regularly over the heir's lifetime, or the trustee may be instructed to release the remaining funds once the beneficiary reaches a certain age. At that point, the heir is fully responsible for the inheritance and can spend it as they wish. 

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